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CA Final · Financial Reporting · Recognition and Derecognition of Financial Instruments

Kaveri Infra Ltd. holds an equity investment classified at fair value through other comprehensive income, bought on a regular way basis. It follows settlement date accounting. The trade date is 29 March, with fair value Rs 500 per share for 1,000 shares. The reporting date is 31 March, with fair value Rs 520 per share. The settlement date is 3 April, with fair value Rs 530 per share. How is the change in fair value between trade date and the reporting date treated?

Rs 20,000 is recognised in other comprehensive income at 31 March. Under settlement date accounting, the fair value change between trade and reporting date is treated as for the acquired asset, which here is FVOCI equity, and (520-500) x 1,000 gives Rs 20,000.

  1. ARs 20,000 is recognised in other comprehensive income at 31 MarchCorrect
  2. BRs 20,000 is recognised in profit or loss at 31 March
  3. CNothing is recognised until settlement on 3 April
  4. DRs 30,000 is recognised in other comprehensive income at 31 March

Explanation

With settlement date accounting, the change in fair value of the asset to be received is accounted for in the same way as the acquired asset. For an FVOCI equity investment this is OCI. The change to 31 March is (520-500) x 1,000 = Rs 20,000. Rs 30,000 wrongly uses the settlement date value, which is after the reporting date.

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